GK Quiz and Answer On Tax System of India

Tax can be defined as an enforced contribution of payment to the legislative authority. Taxes are the main source of income for any government of the world. The government use the collected money through taxes for different programs and projects for the development of the country. The tax system of India is a three-tier federal structure. The system of tax structure is comprised of the union government, state governments, and local bodies. 

There are mainly two types of taxes are imposed in India. These taxes are direct tax Indirect tax. The direct tax is imposed on income tax, gift tax, capital gain tax, etc. on the other hand; indirect tax is a value-added tax, service tax, Goods and Service tax, customs duty, etc. In this article GK quiz on tax system in India is given. Questions and answer on tax system of India are often asked in examinations; hence these questions on tax system would be helpful for competitive exams.

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Gk Quiz on Tax System in India

Questions on the tax system are given correct answers and explanations. Some important questions and answers on tax system of India are given below.

• Choose one tax among the given options that is levied at every stage of production?

1. VAT

2. Income tax

3. Custom duty

4. GST

Answer: a

Explanation: The VAT is levied at every stage of production. It is a consumption tax. It is administrated at each stage of the production of goods. The full form of VAT stands for value-added tax.

• Choose a type of indirect tax among the given options?

1. Sales tax

2. Income tax

3. Wealth tax

4. Corporation tax

Answer: a

Explanation: Corporation tax, Income tax and wealth tax etc., are some examples of direct taxes and imposed by the central government. Indirect taxes are mostly imposed by the state government. Some examples of indirect taxes are sales tax, customs duty excise duty etc. 

• Select one tax that was abolished by the Goods and Services Tax (GST).

1. Property tax

2. Corporation tax

3. VAT

4. All of the above

Answer: c

Explanation: VAT is abolished by the Goods and Services Tax (GST).  GST replaced the Central and State indirect taxes like value-added tax, excise duty and service tax. The Goods and Services Tax was implemented from 1st July 2017.

• Which type of tax would be levied on it if any company imports a product from abroad?

1. VAT

2. Income tax

3. Corporation tax

4. Custom duty

Answer: d

Explanation: Custom Duty would be levied on it if any company imports a product from abroad. Customs duty is a tax that is imposed on all imported and exported goods.

• Which of the following tax is imposed by the Central Government, but the collection of taxes is done by the state government?

1. VAT

2. Income tax

3. Corporation tax

4. Stamp Duty

Answer: d

Explanation: The right to imposing stamp duty is given to the Central Government, but the right of collection of stamp duty is given to the state government.

• What is meant by Tax haven?

1. A country that provides tax exemptions to the other citizens or foreign citizens that there will be no tax on investing the money in their country.

2. The subsidy is given by the government in taxes

3. Tax evasion in the domestic country

4. Imposition of the equal taxes on internal producers and external producers

Answer: a

Explanation: A country that provides international citizens with the facility of investing in their country and not to pay any tax on the profit earned by the invested money. Mauritius and Cyprus provide this facility.

• What type of tax system is working in India?

1. Progressive

2. Degressive

3. Proportional

4. None of the above

Answer: b

Explanation: There are three rates of income tax that are applicable in India. Initially, the income tax is progressive in nature, but it becomes Proportional later that is known as degressive rate. Digressive tax is a mixture of the progressive tax and proportional tax.

• Under which tax system the rate of tax diminishes as the increase of taxable amount happen.

1. Progressive Taxation

2. Regressive Taxation

3. Degressive Taxation

4. Proportional Taxation

Answer: b

Explanation. In a regressive taxation type of tax system, the tax rate diminishes as the amount increases. Some examples of specific regressive taxes are those types of goods whose consumption society wants to discourage, such as alcohol, tobacco, and gasoline.

• Which model of Goods and Service Tax has been taken by India?

1. USA

2. Canada

3. UK

4. China

Answer: b

Explanation: India has taken the model of Canada of dual GST. The dual GST model implies that taxation is imposed by both the central and state governments. Money transactions done within a single state are collected as the Central GST by the Central Government and State GST by the State governments.

• Which of the following tax is not imposed by the Union Government of India?

1. Agricultural tax

2. Corporation tax

3. Custom duty

4. Sales tax

Answer: a

Explanation: Agriculture tax comes under the jurisdiction of the government of the state; therefore state has the right to impose this tax. Agricultural income in India is a valid source of income for the state government. Agriculture taxes basically includes income from sources of agricultural land, buildings on or related to agricultural land and commercial produce from agricultural land.

Benefits of Taxes

The benefits of tax collection by the government are as follows.

• The tax systems usually contribute to the gross domestic product (GDP) of a country. The contribution taxes are helpful in speeding the economic growth of the country that in turn has a ripple effect on the economy of the country. It will provide development by raising the standard of living, increasing job creation, etc.

• Tax System is also helping the health facilities of our country.  If taxes are not collected by the government, then the smooth functioning of the health sector would never be impossible. The money collected through taxes goes to funding health services such as social healthcare, medical research, social security, etc.

• The most deserving recipient of tax money is the education system. Governments put a lot of funds into improving the education system of the country. Money collected from different taxes is contributed to funding, improving and maintaining the public education system.

• The governments also use money generated through taxes to fund sectors that are crucial for the development of the citizens, such as security, scientific research, environmental protection, etc.

• Some portion of the money is also given to funding projects such as pensions, unemployment benefits, childcare, etc. Without administrating taxes, it would be impossible for governments to raise money to fund these types of projects.

• Governments also impose high taxes for undesirable activities such as the consumption of alcohol, tobacco smoking, etc. 

• The concept of taxation is also important for the development of industries and trades in the country. The governments can fund this money back into the economy in the form of loans or other funding forms to promote trades and businesses.

The tax system of India is contributing to the development of the country. The division of taxes is done between the central government and the state government. The Central Government of India imposes some taxes such as income taxes, customs duty, central excise duty, and service tax. The state governments impose a professional tax, land revenue, income tax on agricultural income, state excise duty, and stamp duty. The local bodies are also given rights to collect some taxes such as property tax and other taxes on various services like water and drainage supply. Hence it is our duty to pay taxes honestly.